BOSTON (CBS) – Happy Thanksgiving!
When you mention gifting what usually comes to mind is a birthday or Christmas. What I’d like to talk about is gifting assets to another generation.
The federal estate tax laws were suspended for 2010 so if you die this year your estate will owe no federal estate taxes. This little glitch in the estate tax law saved George Steinbrenner’s family about $500 million in federal estate taxes.
If laws do not get changed again your federal exemption, which is the amount you can give away tax free, for next year will be $1 million and if you have more assets than that when you die your estate will owe taxes.
And for Massachusetts your exemption is $1 million. Married couples have an unlimited gifting privilege between spouses in life or death.
Now each of us can give away annually $13,000 without using our exemption to as many recipients as we wish as long as we have the money to make the gifts. And if we are married and our spouse joins in we can gift $26,000. We can also pay someone’s medical or school bills and that is treated similar to annual gifting in that you don’t use up your exemption.
So why would we want to give away our money? If you want to help the next generation accomplish their goals or if you want to pare down your estate so you won’t owe estate taxes. You can do this using your gifting exclusion.
For example, you have an estate worth $1.2 million and if you die in 2011 the estate will owe taxes on $200,000. An estimated $120,000. Now would you rather give it away to family or to the government?
You can gift your granddaughter this December $13,000 and if your husband joins in, $26,000. If she is married you gift her husband $26,000. Come January 1st you can gift them another $52,000. That totals $104,000.
Your grandson got into Tufts Medical. He got some loans and grants but will need about $48,000 a year in tuition alone. You can pay the tuition bill for him, but you must pay the school directly. And then you and Grandpa can still gift him $26,000 in December and another $26,000 in January. That totals $100,000.
Gifting can be an estate planning tool for you can save on future estate taxes and have the pleasure of watching your dollars work for your children or grandchildren while you are still alive. But do not give away assets you think you will need in the future.
One more thing: USA Today had in interesting snapshot on people’s favorite part of thanksgiving; Family 40%, Leftovers 33%, Turkey, 15%, football 11% shopping 2%. I was pleasantly surprised with the results. Family and leftovers are the best part of this day for me!